The passing of a major piece of tax legislation can dramatically alter how families plan for the future. Estate tax changes are particularly significant because they directly impact how wealth is transferred across generations. With the One Big Beautiful Bill Act (OBBBA) now law, many individuals and families are wondering how their estate plans may be affected in the coming years.
At the Law Firm of Kavesh, Minor & Otis, our California estate planning lawyers have reviewed this legislation closely. Because so much of estate planning relies on anticipating how federal rules will apply to assets, knowing what has changed—and what has not—is essential. This article explains the new exemption levels, portability rules, stepped-up basis, and the removal of the old sunset provision, while also outlining what Californians should consider when reviewing their plans.
What Is the One Big Beautiful Bill Act and Why It Matters
The One Big Beautiful Bill Act was signed into law on July 4, 2025. It makes several modifications and extensions to tax law, including ones that affect estate tax changes and gift tax changes. Among the most significant is the alteration (and in many respects the removal) of uncertainty which had loomed under prior law regarding how much could be transferred free of federal estate or gift tax.
In short, the OBBBA provides more stability in estate planning by eliminating the automatic reduction in exemptions that was previously scheduled to occur. Families now have a clearer framework for long-term planning.
Key Changes Under the OBBBA in Estate & Gift Tax Laws
Below are the major estate tax changes and gift tax changes brought about by the OBBBA, followed by what remains unchanged and what Californians in particular should be aware of.
Understanding these updates is important because they directly influence how families choose to structure their wills, trusts, and other planning tools.
Increased Federal Exemption Amounts & Permanence
The primary estate tax changes concern the basic exclusion amount (sometimes called the lifetime exemption) and its permanence:
- New exemption levels. Beginning January 1, 2026, the federal estate, gift, and generation-skipping transfer (GST) tax exemption (basic exclusion amount) is permanently increased to $15 million for individuals and $30 million for married couples.
- Indexing for inflation. After 2026, the exemption will be adjusted annually for inflation.
- No automatic sunset. Unlike the Tax Cuts and Jobs Act (TCJA) provisions that were set to expire at end of 2025, these higher exemption amounts under OBBBA do not include a built-in expiration date. That means the law provides legislative permanence of these estate tax changes unless future Congresses amend them.
These changes provide families with a higher threshold for taxable estates and more certainty for long-range planning.
Portability: Spouse’s Unused Exclusion
Portability refers to the ability of a surviving spouse to use any unused portion of the deceased spouse’s exclusion amount. Under OBBBA:
- Portability remains available. The rules allowing a surviving spouse to use their deceased partner's unused estate tax exemption continue unchanged, effectively preserving a combined marital shield of up to $30 million starting in 2026.
- The rules are unchanged. The OBBBA did not make any material changes to portability, so the existing mechanisms and filing requirements remain in place.
By leaving portability rules intact, the law preserves flexibility for married couples, who may now plan with even larger combined exemptions in mind.
Generation-Skipping Transfer (GST) Exemption
The GST tax is a tax on transfers that skip a generation (e.g., to grandchildren). Under OBBBA:
- Exemption amounts are aligned. The GST exemption will be set at $15 million per individual beginning in 2026, matching the basic exclusion amount and indexed for inflation thereafter.
- Exemption remains non-portable. A surviving spouse cannot claim the deceased spouse's unused GST exemption, as this exemption is not portable between spouses.
This means that careful planning is still needed for multigenerational transfers, since portability does not apply to the GST exemption.
Stepped-Up Basis Rule Maintained
A concern for many estate planners was whether OBBBA would change or eliminate the “stepped-up basis” rule. That rule allows beneficiaries to receive inherited assets at fair market value as of the date of death, thereby avoiding capital gains taxes on the appreciation that occurred during the decedent’s lifetime.
- The rule remains in place. The provision for a stepped-up basis on assets held at death is preserved under the new law.
- Lifetime gifts carry over basis. Gifts made during life do not receive a step-up; the recipient takes the donor's original cost basis, which remains the standard tax treatment.
For Californians who own highly appreciated property, the preservation of the stepped-up basis rule remains one of the most important features of estate planning.
What Has Not Changed
While many estate tax changes are substantial, several core features remain unchanged under OBBBA:
- The top tax rate holds. The top marginal federal tax rate of 40% on estates, gifts, and GSTs above the exemption amount remains unchanged.
- Annual gift exclusion continues. The annual gift tax exclusion (e.g., $19,000 per recipient in 2025) continues and will keep pace with inflation.
- Planning structures remain valid. Basic estate planning structures—such as revocable living trusts, grantor trusts, SLATs (Spousal Lifetime Access Trusts), GRATs (Grantor Retained Annuity Trusts), etc.—are not fundamentally altered in their legal validity.
These constants provide a sense of continuity, ensuring that familiar planning techniques remain viable.
Timing: When the Changes Take Effect
Understanding timing is essential:
- The current exemption applies for 2025. The current exemption (for 2025) is approximately $13.99 million per individual (or about $27.98 million for married couples).
- A new baseline begins in 2026. Effective January 1, 2026, the new exemption of $15 million per person (and $30 million per married couple) comes into force.
- Inflation indexing starts after 2026. The process of indexing the basic exclusion amount for inflation will begin after the new baseline is established in 2026.
Knowing the exact timeline helps families determine whether to take action now or wait until the new rules are in effect.
What Californians Should Know: State-Level Issues
Because this is federal law, it directly affects the federal estate tax and gift tax regime. However, for individuals and families in California:
- No state estate tax. California has no state estate tax currently. So, the federal estate tax changes are likely to have more impact for federal planning rather than duplicative state estate tax concerns.
- Stepped-up basis is highly relevant. California has high state income tax rates, and many Californians hold assets (e.g., real estate, investment portfolios) whose basis and potential capital gains treatment matter. The preservation of stepped-up basis is therefore particularly relevant.
- Asset transfer timing matters. Many Californians own business interests, real estate, or family-owned operations. These can have large built-in gains. If those assets are transferred via gift rather than inheritance, beneficiaries may face capital gains when selling, since gift basis carries over. So planning for transfers at death (rather than gifts) where possible may be more advantageous under the new rules.
- State law coordination is essential. Estate planning in California also needs to coordinate with trust law, probate, and other structural mechanisms, which may differ from federal law in how they treat ownership, community property, etc.
Ultimately, Californians must consider both federal rules and state-specific tax realities when updating estate plans.
Strategic Implications: What Families and Individuals Might Consider
With these estate tax changes, different strategies may shift in priority. The attorneys at Kavesh, Minor & Otis identify several areas families might re-evaluate. These are not suggestions of what to do, but points to examine with qualified estate planning counsel.
- Review existing estate plans. Many trust, will, or formula clauses were drafted with the assumption that the federal exemption might drop steeply (under TCJA’s sunset). With the exemption now higher and permanent, some plans may over-shelter or improperly distribute assets.
- Asset retention vs. lifetime gifts. With higher exemptions and the preservation of step-up in basis, families may find that holding assets until death (to get basis step-up) is more tax efficient in some cases rather than making lifetime gifts which carry over basis and use up part of lifetime exemption.
- Married couples should check portability. Ensuring timely filing of estate tax returns where needed to elect portability (for the unused exclusion), so that the surviving spouse can use the full available exclusion.
- GST planning for multi-generation wealth. For those with intentions to pass wealth across multiple generations (to grandchildren, great-grandchildren etc.), proper use of the GST exemption is especially important. Since the GST exemption is not portable between spouses, careful allocation (during life or at death) may be needed.
- Structures like SLATs, GRATs, dynasty trusts. These may still be useful, especially for high-net-worth families, but their usage, timing, and size may shift under the new exemption amounts.
- Business succession planning. For entrepreneurs and real estate investors in California, passing on business interests, real estate, or substantial investment portfolios may require reworking valuation, liquidity, and distribution plans in light of the higher thresholds.
Overall, estate planning remains a dynamic process, and these new rules simply adjust the framework within which decisions are made.
The Sunset Clause and Permanent vs. Potential Future Risk
Although OBBBA made many changes permanent, it is still legislation, and future Congresses could amend tax law. Key points:
- The automatic sunset is eliminated. The automatic sunset that was part of TCJA’s high exemption amounts has been eliminated. Under TCJA, the exemption was slated to drop at end of 2025. OBBBA removes that automatic sunset for the basic exclusion amount.
- Permanence is not absolute. That said, “permanent” in current law means no preset expiration under that legislation—but not immutable. Legal changes are always possible with new Congresses or administrations.
- Prudent planning assumes potential change. For those with very large estates or who expect their net worth to rise significantly, planning as if the law might change remains a prudent assumption.
The removal of the sunset provision provides stability, but it should not be mistaken for a guarantee against future political shifts.
Steps to Take Now (For California Individuals and Families)
To make the most of the estate tax changes and gift tax changes under OBBBA, individuals and families in California may want to:
- Contact an estate planning lawyer. Consider contacting an attorney to review your wills, trusts, beneficiary designations and related documents. The attorneys at Kavesh, Minor & Otis can assist in seeing if your existing documents still reflect your goals under the new federal exemption amounts.
- Inventory your assets & assess built-in gains. Know which assets could face large gains and whether holding until death (to get step-up) or gifting makes sense.
- Update formula trusts and trusts using the “federal exemption in effect at death” provisions. Some trusts may have triggers or computations tied to lower exemptions; those may give unintended results now.
- Consider charitable giving if relevant. If you have philanthropic goals, combining charitable deductions and estate-gift tax strategies might bring added benefits.
- Coordinate business succession and real estate plans. This is especially important if there are liquidity constraints (e.g., heirs may need to sell or finance estate tax liabilities).
Taking proactive steps ensures that your estate plan is aligned with today’s law and flexible enough to adjust if Congress changes the rules again.
